Twitter takes small step to becoming a business

Twitter is taking a small step to becoming a real business. The microblogging site for the attention deficit disordered is carefully rolling out advertising. Ads will be limited to searches and those that don’t generate favorable response pulled. It’s a sensible first step in Twitter’s need to generate revenue without annoying users. But more are needed.

While Twitter’s users send about 50 million messages a day, and the figure is growing quickly, it has been unclear how the company will support itself. Yes, the company raised a reported $100 million in September. And agreements with Microsoft and Google later in the year added perhaps a quarter as much. But the firm needs regular and larger injections of cash to sustain growth and fight off rivals like Facebook.

Yet, as its social networking competitor’s experience shows, making ads too intrusive may put off users. The start-up doesn’t need to further the perception that Twitter feeds are narcissistic and corporate exercises in self promotion. Its initial effort does a good job of plucking the goose while generating minimal hissing.

First, the ads will only show up for less than 10 percent of users. Over time, this figure will presumably rise, but it gives time for customers to get used to the idea of sponsored tweets. Second, ads that users don’t forward or mark as favorites will be deleted. This ensures customers will only find promotions deemed to be useful or at least minimally entertaining. And advertisers will know their ad dollars are being spent wisely.

That said, Twitter will eventually have to expand advertising beyond this experimental realm. Many of the service’s beneficiaries simply avoid the company’s site and use third-party software to sort and add context to tweets. These users are the company’s next step.

While the company has taken a good first step to make ads useful, the trade-offs between intrusive advertising and the need for revenue generation will probably become more acute over time. If Twitter wants to reach its goal of 1 billion users, it will need a substantial war chest. For that, the firm will need to generate dollars as effortlessly as starlets and pop stars produce tweets.

I’m not suprised to read about Twitter opening their doors to advertising. I recently learned that U Tube is allowing advertisers to use the massive number of video to deliver targeted veiwers to advertiseres sites.

One service is keeping the cost at $0.01 per day per ad shown on 200 of the top video’s using the customers desired search phase.

I’d be very surprised if these short messages slow down U Tube popularity.

ABOUT BREAKINGVIEWS

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. The company was founded in 1999 as Breakingviews.com and was acquired by Thomson Reuters in 2009, becoming Reuters’ brand for financial commentary. Every day, we comment on the big financial stories as they break. Our expert analysis is provided by a global team of correspondents based in New York, Washington, Chicago, London, Paris, Madrid, Hong Kong, Beijing and Singapore.

For the full commentary and analysis service from breakingviews.com, including regular emails containing the latest views, contact sales@breakingviews.com.